Even though NHL contracts are paid in
American dollars, Canadian teams are generally at a disadvantage when trying to
attract big-name players due to the country’s high tax rates. The rate of tax
players pay on their earnings varies greatly throughout the league depending on
where they’re located. Those who believe money is the bottom line when it comes
to contract time may be willing to take less cash in some cities because a
lower tax rate means they’ll actually take home a bigger chunk of their pay.

A prime example is the case of forward
Steven Stamkos of the Tampa Bay Lightning. Stamkos is scheduled to become an
unrestricted free agent on July 1st and is bound to have several
suitors. However, if he’s just interested in making as much money as possible
he’s probably better off staying where he is and signing a smaller contract.
The reason for this is because there’s no state income tax in Florida. The
Lightning has reportedly offered Stamkos a deal worth $8.5-million a season for
eight years and he didn’t appear too interested in it.

As usual, the media in Toronto is getting
involved in the situation by claiming Stamkos will sign with the Toronto Maple
Leafs for no other reason than the fact that he hails from nearby Markham. But
the Leafs would have to offer him more than $10 million per season just to
equal Tampa’s offer of $8.5 million. Players who skate for Ontario-based teams
Toronto and the Ottawa Senators are taxed at a rate of 53.53 percent by the Canadian
government as are any other residents who are paid more than $220,000 per year.

If Stamkos stays in Tampa or signs with the
neighbouring Florida Panthers for $8.5 million, he’d take home $4.6 million
dollars a year after agent fees and federal taxes. However, in Ontario he’d
keep just $4.3 million on a $10 million annual contract. The Leafs and Senators
would have to dish out approximately $2 million more per year for Stamkos to
take home the same amount of money as he does in Florida. On a seven year
contract, this would see an Ontario based team paying out an extra $14 million,
which could be a crucial amount due to the league’s salary cap rules.

Ontario teams are at the greatest
disadvantage in the league and Canada it comes to money-hungry free agents. Players
in Quebec are subject to a tax rate of 53.31 per cent, while those in Winnipeg
fork over 50.4 per cent. Players on Alberta teams Edmonton and Calgary are
taxed 48 per cent and those in British Vancouver pay 47.7 per cent. The tax
rates in Ontario and Quebec are higher than any of the 50 American states and
fans will notice that most NHL stars who become free agents tend to sign with
U.S. teams.

Most Canadian clubs were at an advantage
before the salary cap was introduced in 2005 since they could spend as much as
they pleased on free agent contracts. This was easy to do since the majority of
Canadian teams sold out their rinks night after night and were among the
league’s top revenue earners. Things are tighter with the salary cap in place though
and if Canadian franchises need to spend more money on big-name free agents it
obviously means they have less to offer the remaining players on their rosters.

Players on the Dallas Stars and Nashville Predators
are also lucky enough to pay no state income tax and can sign for less money in
these locations and still earn more. If two clubs are offering the same amount
of money to a free agent there’s a good chance he’ll sign with the team that
has a lower tax rate. There’s also an added bonus since the current exchange
rate sees the American dollar worth roughly 30 per cent more than its Canadian
counterpart. As soon as players cross the border or return home to Canada for
the summer their wallets swell. Therefore, the more money they keep the better.
This isn’t to say that all American-based NHL players pay little to no tax as
California’s combined rate is 52.9 per cent, while Minnesota’s is 49.45 per
cent, New Jersey’s is 48.57 per cent, Washington, D.C. pays 48.55 per cent and
New York’s rate is 48.42 per cent.

As you can see these figures are higher
than Alberta and British Columbia. But while American players may not be
required to pay state tax, they still need to pay federal taxes with the lowest
rates in the league being Florida and Texas at 39.6 per cent. In addition, the
top tax rates in many states applied to a higher income level than in Canadian
provinces. For example, people making over $220,000 in Ontario pay the highest
rate while you need to earn more than $1 million in California to be hit with
the most tax.

Not all free agents base their decisions on
the almighty dollar though. Some of them are more interested in the city
they’ll be living in as well as the quality of the team on the ice and what
their role with the club will be. But whatever reason a free agent has for
signing with a team, the higher taxes aren’t doing the Canadian based clubs any
favours.